Biz: Wealthy favoring South Korea Government Tax Revenue Shortfalls: Chaebols Dodge Taxes While South Korea Government Tax Revenue Deficit Mounts
In the first five months of this year, government tax revenues suffered a staggering deficit of 9 trillion won, with projections hinting at an even bleaker shortfall for the entire first half, including June. This fiscal catastrophe is largely attributed to chaebols and the affluent class dodging their tax obligations scot-free.
During this period, corporate taxes—a crucial revenue source—plunged by a jaw-dropping 15.3 trillion won compared to last year, contributing to an overall deficit of 9.1 trillion won. This decline stemmed from lackluster corporate performance, yet the government's response is to consider slashing taxes across the board, including scrapping the comprehensive real estate and financial investment income taxes, while easing the burden of inheritance taxes, all of which threatens to exacerbate our fiscal woes.
While the government claims to prioritize fiscal health, its concurrent implementation of 'appropriation restructuring'—essentially cutting budgets for social welfare and research and development—paints a starkly contradictory picture. Clearly, a decision must be made between tax reductions and fiscal responsibility to steer our tax policy back on course.
According to data unveiled by the Ministry of Strategy and Finance, the spotlight was on corporate taxes and value-added taxes from January to May. Corporate tax collection plummeted to 28.3 trillion won from 43.6 trillion won last year, largely due to plummeting corporate profits. Notably, small and medium-sized enterprises struggled to meet their tax obligations, with some even receiving hefty refunds through legal maneuvering.
Conversely, value-added tax saw a significant 5.4 trillion won surge from the previous year, driven by increased consumer spending and soaring prices of essential goods.
Overall national tax revenue from January to May amounted to 151 trillion won, marking a distressing 5.7% decline from the same period in the previous year. May alone witnessed a collection of 25.5 trillion won, a 700 billion won decrease from May last year.
Despite a projected annual tax revenue of 367.3 trillion won, only 41.1% has been collected thus far. While this is marginally better than last year's record revenue shortfall, it falls short of the recent five-year average—an unmistakable early warning of economic distress.
The tax authorities issue an 'early warning' when the tax collection rate deviates by more than 3 percentage points in March and 5 percentage points in May compared to the five-year average, and unsurprisingly, Yoon's government has issued this warning every single year.